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Market recovery: sense or sentiment?
12 apr 2019
Stock markets across all regions went up for the third consecutive month in a row. The MSCI All Countries index for instance shot up 2.96% in March, bringing its year-to-date gain to 14.2%. This effectively means that optimistic investors have now pushed prices above their previous high which was reached in 2018.
Does this mean that fears over an escalation of the US-China trade conflict, tightening monetary policy and slowdown in global economic activity have all receded?
US-China trade conflict
Reopening of the dialogue, but politics – certainly with the current resident of the White House - remain uncertain.
Tightening monetary policy
Fed reacted to lower growth expectations and declining markets by becoming more patient, implementing a more dovish policy.
Slowdown global growth
Fed actually predicts a slowdown or they wouldn’t have changed their policy. Macro-economic data remains mixed.
The stock market weakness together with a slowing growth rate urged the Federal Reserve to become more patient in implementing their tightening monetary policy. However, central banks around the world continue to make decisions that extend and inflate a business cycle (expansion) that has gone on for over 10 years now. While the music may run a little longer because of this dovish policy, what goes up must come down eventually - certainly if the envisioned growth does not follow…
March was a pretty bad month for our funds, that lagged the markets significantly. With technology stocks up 20%, growth seems to be in vogue again. Navigator has more of a value tilt and is underinvested in mega caps, which makes it hard to outperform when a significant part of the market gains is driven by a few fast-growing giants. In Flexible, we increased the hedge last month, but have not been rewarded for this decision as markets remained bullish.
Werner, Thierry and Nils